Investors worried over rating agencies-survey

News

-Staff

Written by: Staff

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Published: Friday, February 24, 2006, 16:40 [IST]

LONDON, Feb 23 (Reuters) Two-thirds of bond issuers are worried about a lack of competition among credit rating agencies, and almost half are concerned about the way conflicts of interest are tackled, a survey has found.

Most bond-market borrowers need one or more credit ratings, and increased regulatory scrutiny is falling on the LONDON, Feb 23 (Reuters) Two-thirds of bond issuers are worried about a lack of competition among credit rating agencies, and almost half are concerned about the way conflicts of interest are tackled, a survey has found.

Most bond-market borrowers need one or more credit ratings, and increased regulatory scrutiny is falling on the LONDON, Feb 23 (Reuters) Two-thirds of bond issuers are worried about a lack of competition among credit rating agencies, and almost half are concerned about the way conflicts of interest are tackled, a survey has found.

Most bond-market borrowers need one or more credit ratings, and increased regulatory scrutiny is falling on the LONDON, Feb 23 (Reuters) Two-thirds of bond issuers are worried about a lack of competition among credit rating agencies, and almost half are concerned about the way conflicts of interest are tackled, a survey has found.

Most bond-market borrowers need one or more credit ratings, and increased regulatory scrutiny is falling on the $2.5 billion industry, which is dominated by three big players -- Standard&Poor's, Moody's Investors Service, and Fitch Ratings.

The report, released on Thursday by the Bond Market Association (BMA), found 67 per cent of issuers and 42 per cent of investors said a lack of competition among raters mattered.

Issuers said regulation, elimination of anti-competitive practices, and increased acceptance of other agencies would help foster healthy competition -- but extra costs, ''little added value'' and the time required to work on relationships with raters all held them back from using other agencies.

The survey also found 45 per cent of borrowers were not comfortable that agencies were effectively managing potential conflicts of interest.

Borrowers said the agencies' focus on profits and fee structures could cause conflicts of interest, and called for increased disclosure and transparency guidelines.

On the investors' side, a third said they were dissatisfied with the quality of ratings.

The industry body's survey comes as U.S. lawmakers weigh up whether to strengthen the rules governing agencies.

A bill currently in the U.S. Congress would set up a new regulatory framework within the Securities and Exchange Commission (SEC), while a member of the Senate Banking Committee has said it plans to hold a hearing on rating agency conflicts of interest, competition and transparency in Mid-March.

Most investors said the number of ratings a company had mattered, and a majority of those said three ratings was ideal. Fitch was also most widely cited by issuers as offering value for money.

The report, released on Thursday by the Bond Market Association (BMA), found 67 per cent of issuers and 42 per cent of investors said a lack of competition among raters mattered.

Issuers said regulation, elimination of anti-competitive practices, and increased acceptance of other agencies would help foster healthy competition -- but extra costs, ''little added value'' and the time required to work on relationships with raters all held them back from using other agencies.

The survey also found 45 per cent of borrowers were not comfortable that agencies were effectively managing potential conflicts of interest.

Borrowers said the agencies' focus on profits and fee structures could cause conflicts of interest, and called for increased disclosure and transparency guidelines.

On the investors' side, a third said they were dissatisfied with the quality of ratings.

The industry body's survey comes as U.S. lawmakers weigh up whether to strengthen the rules governing agencies.

A bill currently in the U.S. Congress would set up a new regulatory framework within the Securities and Exchange Commission (SEC), while a member of the Senate Banking Committee has said it plans to hold a hearing on rating agency conflicts of interest, competition and transparency in Mid-March.

Most investors said the number of ratings a company had mattered, and a majority of those said three ratings was ideal. Fitch was also most widely cited by issuers as offering value for money.

The report, released on Thursday by the Bond Market Association (BMA), found 67 per cent of issuers and 42 per cent of investors said a lack of competition among raters mattered.

Issuers said regulation, elimination of anti-competitive practices, and increased acceptance of other agencies would help foster healthy competition -- but extra costs, ''little added value'' and the time required to work on relationships with raters all held them back from using other agencies.

The survey also found 45 per cent of borrowers were not comfortable that agencies were effectively managing potential conflicts of interest.

Borrowers said the agencies' focus on profits and fee structures could cause conflicts of interest, and called for increased disclosure and transparency guidelines.

On the investors' side, a third said they were dissatisfied with the quality of ratings.

The industry body's survey comes as U.S. lawmakers weigh up whether to strengthen the rules governing agencies.

A bill currently in the U.S. Congress would set up a new regulatory framework within the Securities and Exchange Commission (SEC), while a member of the Senate Banking Committee has said it plans to hold a hearing on rating agency conflicts of interest, competition and transparency in Mid-March.

Most investors said the number of ratings a company had mattered, and a majority of those said three ratings was ideal. Fitch was also most widely cited by issuers as offering value for money.

The report, released on Thursday by the Bond Market Association (BMA), found 67 per cent of issuers and 42 per cent of investors said a lack of competition among raters mattered.

Issuers said regulation, elimination of anti-competitive practices, and increased acceptance of other agencies would help foster healthy competition -- but extra costs, ''little added value'' and the time required to work on relationships with raters all held them back from using other agencies.

The survey also found 45 per cent of borrowers were not comfortable that agencies were effectively managing potential conflicts of interest.

Borrowers said the agencies' focus on profits and fee structures could cause conflicts of interest, and called for increased disclosure and transparency guidelines.

On the investors' side, a third said they were dissatisfied with the quality of ratings.

The industry body's survey comes as U.S. lawmakers weigh up whether to strengthen the rules governing agencies.

A bill currently in the U.S. Congress would set up a new regulatory framework within the Securities and Exchange Commission (SEC), while a member of the Senate Banking Committee has said it plans to hold a hearing on rating agency conflicts of interest, competition and transparency in Mid-March.

Most investors said the number of ratings a company had mattered, and a majority of those said three ratings was ideal. Fitch was also most widely cited by issuers as offering value for money.

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